Advertising, the Myth of Mass Media, and the Relationship Strategy

The myth of mass media, lovely while it lasted, was this: All readers see all ads, so we charge all advertisers for all readers. The unbundling of mass media and the rise of endless competition punctures that myth and robs legacy companies of the pricing power — and monopolies — they had so enjoyed. Today, I believe we need to shift to a business built on the relationship strategy I began outlining in the first part of this essay. There, I argued that knowing people as individuals and communities — no longer as a mass — will allow us to build better services, and that, in turn, pushes us to develop new forms of news. Now I will look at how that relationship strategy can form the foundation of a stronger advertising business for news and media.

To start, if we provide our users with better relevance and value, that surely will build greater engagement, loyalty, usage, and attention, and that in turn will create more ad inventory to sell (though, granted, hardly any media company sells all the inventory it has today anyway). More important, the relationship strategy gives us the opportunity to increase the value of what we sell to advertisers. By knowing more about who our users are, we can sell and deliver more targeted advertising that is more relevant to their customers and thus more effective. Rather than serving only one-size-fits-all “impressions” to anonymous “eyeballs” by the thousands as advertisers and media companies do now, we can offer more productive measures of value like attention, engagement, action, impact, and even sales. We can serve specific groups of users to advertisers who value them highly. With privacy properly protected, we have the opportunity to become a trusted broker of data we gather about our users. And if we get good at the relationship business, we have a brief window of opportunity to teach and sell these skills to advertisers as a service — presuming they don’t wake up and learn them before we do. We also have the opportunity to move past selling advertising to selling products and services directly to users, venturing into commerce — which really is just a truncated form of marketing and advertising. The relationship strategy is one defense against the commodification of media’s old content business by new competitors and new technologies.

Before exploring that chain of value enabled by the relationship strategy, allow me to return to dissect the myth of mass media, for it still has a profound impact on how we view and operate our industry. Of course, the myth was never fully true. Marketers built their own discounts into the advertising media they bought: A cosmetics brand values only the women it reaches in People magazine, not the men, so People doesn’t sell all readers to all advertisers; the men are just waste. And, of course, there’s the old saw from legendary retailer John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” Nonetheless, we can see the impact of the myth on media still. By selling all readers to advertisers, we end up valuing all readers equally and treating them all the same. This is why newspaper editors have long dreaded the day when the publisher would call and ask to cut syndication and paper costs by axing the least-read comics. The editor would commission a more-or-much-less-scientific survey to determine the laggards and then would announce the death of, say, Beetle Bailey — World War II having ended a few generations earlier. Then the editor’s phone would ring, allegedly off the hook, with so many old codgers threatening to cancel their subscriptions. The paper didn’t want to lose even one old subscriber, so valuable was she — just as valuable as any other. So with an abject, public apology from his executioner the editor, Beetle would inevitably be resurrected. In 2001, Star-Ledger Editor Jim Willse killed the paper’s stock tables. Even after investing some of the savings in an improved business section, the paper netted $1 million to the bottom line from lower paper, ink, and syndication costs. Most others in the industry hadn’t dared take this step for fear of losing subscribers. In the end, the Ledger lost only a handful of subscriptions — not even a dozen. At a dozen, that would mean that before the change, the paper had been spending $83,000 each on stock tables to hold onto those readers — some of them likely near death anyway. Earlier, I questioned the economic value of the sports section to news organizations. How many newspaper features are kept alive to retain incremental readers who may not be as valuable as other readers?

The notion of the variably valued reader represents a fundamental change in the media business model and springs naturally from a relationship strategy: We know some people better than others; we thus serve some better than others; some value our service more than others; some are more valuable to advertisers than others; some are more valuable to us than others. This should not be about rejecting less valuable readers — old Beetle Bailey, stock table, and sports fans — or redlining journalism to serve just the affluent. Instead, this equation should help us maximize the value of each relationship and let that drive our business growth. I’ll explore this concept further when I discuss the idea of a reverse pay meter and the new metrics that should drive how we build value.

While busting myths, it’s worth asking whether advertising itself is a myth waiting to die. You might argue that all the improvements in advertising I suggest here are mere incrementalism, adding a few dimes to the price of ads whose value is falling by dollars — and you’d be right. But to quote John Paton, when faced with earning dimes instead of dollars one has little choice but to start stacking the dimes. You might also argue that:

• media’s value as a distributor of advertising is imploding under the weight of an abundance of advertising availabilities and thus plummeting prices;
• brands are themselves becoming media and producing content to both bypass and compete with publishers;
• brands are learning to build direct relationships with customers, again eliminating media as middleman;
• advertising auction marketplaces and programmatic and retargeting advertising (those ads that eerily follow you around the web trying to sell you that camera you just looked at on Amazon — more on that in a moment) are commodifying the value of both media placement and media brands;
• and Google has won the online advertising war anyway.

And you might be right again. Here’s a blunter and even more obnoxious way to put the dystopic case: Advertising is failure. That is, marketing nirvana today is defined as having a great product or service that your customers sell for you. Thus the only reason to advertise is if that fails. Paradoxically, there’s no better demonstration of this advertising-as-failure theorem than the rise of Google as the king of the advertising industry. Google exploded to be the most valuable brand in the world not by marketing itself but by letting us users do it for them.

But here, for once, time may be on our side. Advertisers and their agencies are conservative hobgoblins of habit. Because nobody wants to argue with the guy who holds the checkbook, they are not being educated quickly. They are still buying network TV even though its audiences are shrinking rapidly — and even more surprisingly, they are paying higher rates to buy TV because they think that the mass is now becoming a scarce commodity. We will be able to sell advertising to marketers for many years to come as they continue to dragoon, brainwash, bribe, cajole, fool, beg for, and sometimes even reason with potential customers. The problem is, we in media will be able to charge them only lower and lower rates for the advertising that remains as new technologies and new competitors with new business models continue to commodify and erode the value of media.

Perhaps the ultimate blow in this commodification of media is the emergence of programmatic and retargeting advertising. Programmatic ads are bought by advertisers through artificial intelligence systems that analyze data about users — behavior, demographics — across many sites. These AI systems test ad placements and performance, automatically increasing the effectiveness of a flight of ads across the entire web. Retargeting ads are the ones that follow you all around the web after you look at, say, a pair of shoes on Amazon or a hotel room on Expedia; those marketers paintball you with a cookie that lets it be known on other sites you visit that, “Here’s the lady who looked at those red shoes — quick! bid to show her that ad.” It used to be, in both old and new media, that the advertiser had to find an appropriate, endemic environment for an ad — a fashion story for the shoes, a travel story for the hotel. Or they had to buy an ad placement based on demographics — that is, people who read Fortune can afford more expensive shoes and hotels. That’s the closest they could come to making their ads more targeted and efficient. But programmatic and retargeting advertising can now deliver a specific digital ad to a given individual no matter what site she is visiting. Thus the context that media provides is worth much less than the specific knowledge that this potential customer looked at those shoes or that hotel. If Marriott knows you are interested in going to Atlanta, it doesn’t care whether it serves you its ad for the Atlanta Marriott Marquis on a travel site or a business site or a sports site or a food site; ad placement on those media sites is a fungible — interchangeable — commodity. First-party data trumps mere media. This, once more, is why I am pushing a relationship strategy — so we in media can know more about our own users with our own information about them. Our relationship with individuals could end up having greater value than the content, the context, and the environment for advertising that media have long provided. We used to sell our content as premium. Now we must learn to value our relationships as premium.

If we are to improve the value of what we sell to advertisers based on more knowledgeable relationships with their customers, those relationships will be based on data. Advertisers and agencies do love data. But the data we in media have is still mostly a vestige of our mass-media business model: how many people look at our stuff how often. Tony Haile, founder of web analytics platform Chartbeat, argues that time spent with content and ads — attention, that is — is a better measure of value and is something quality media can still deliver. In most cases, I think he’s right. Chartbeat, which tracks users’ pixel-by-pixel behavior on web pages, found in research that users have trained themselves to scroll right past the top of web pages — where sites’ branding, navigation, promotion and supposedly premium banner ads reside — to get down to the meat of the matter: the content. Thus Chartbeat found that readers spend more time exposed to an ad that appears lower on a page, in the middle of a long article with which a reader is fully engaged. In internal research Chartbeat also found a correlation between time exposed to an ad and the user’s recall of the ad’s brand and message. This would indicate that the ads we thought were of less value, down the page, are actually of greater value than the banners we sell at a premium. Thus, Haile argues, we should be raising our prices for what we had considered secondary ads. It also tells me that news sites have been fools to cut up articles into many pieces to get more pageviews and more banner ads, which readers only scroll past — if those readers even bother with the inconvenience of clicking on the fourth or fifth page of a story that should be served on one page.

Perhaps as penance for cocreating the short attention span theater that is Twitter and the bottomless pit of content that is Blogger, Ev Williams’ latest venture is Medium.com, an elegant platform meant to encourage quality writing and engaged reading of longer pieces about ideas. Medium’s key metric is total time read (TTR) and Williams proposed the idea of charging advertisers by time, more like a broadcaster than a publisher. The Financial Times jumped on that bandwagon, working with Chartbeat to experiment with time-based rates. Its director of digital advertising and insight, Jon Slade, told The Drum:

We can now report back to a client and say we served you a thousand ads, and of those, 500 were seen for one second, 250 were seen for 10 seconds and 250 were seen for 30 seconds. The next obvious step is to sell blocks of time. We can sell a thousand hours of exposure to a chief executive audience in Germany, for example, or we can give clients 500 hours of exposure to finance directors in Belgium. That currency has a lot of merit.

These are new advertising models that try to move past mere ad impressions to a more valuable metric — aggregated attention — and also past an anonymous mass of users to a set of known and valued people we can deliver to marketers for more money. But we can do that only if we know them well. In the first part of this essay, I spoke about newspapers that found in-market readers were worth at least 20 times the value of out-of-market readers. I suggested that they work hard to gather not big data but small data: Do you live in my market? Where do you live? Where do you work? Speaking with other companies that, like the FT, serve business executives, I asked them to name the first data point that would help them increase both the value of their service to their users and the value of their users to advertisers. Their common answer: the industry the user works in. The next data point: the user’s job title. Then followed a cascade of other still-small data points: interests (what they read), actions (whom they hired), holdings (what they own), ambitions (what job they want next), qualifications (what education and jobs they’ve had), and so on. Again, we in media are not built to motivate people to reveal themselves to us. That’s because we are not built to give them back relevant service for that revelation. We don’t have the infrastructure to collect data and maintain user profiles and then to analyze them. Media companies use behavioral data to target advertising but rarely content. They use services such as Salesforce.com to keep detailed profiles of advertising customers but not of readers. We must start with knowing people as the basis of a new business strategy, not only targeting content but creating services in response to demonstrated interest and need.

Obviously, these ideas — and the entire relationship strategy I propose — raise questions of privacy. Around the world, especially in Europe, we are witnessing a backlash — sometimes bordering on a social panic … or a technopanic — around fears that the internet makes it too easy for companies, governments (especially after Edward Snowden’s revelations about the NSA), and nosy or ill-intentioned individuals to take our data without our knowledge and violate our privacy. I won’t get into a detailed argument about the balance of privacy and publicness here; I wrote a book about that. I will concede that our allied industries — media, advertising, and technology — blew it by not being open about how they were using targeting technology. That allowed The Wall Street Journal in its scare series “What They Know” to demonize the targeting cookie. I’ve cautioned publishers from the Dow Jones to Germany’s Axel Springer that by jumping on the privacy panicwagon, they may be decrying practices that are not only usually benign but that also could form the basis of a new business strategy for media companies.

The better way to approach this issue of trust is for media companies to do privacy right, to set the standard for openness: Make it clear that personal data is a currency customers can choose to use — or not — in a transaction that gives them value: greater relevance, less noise, connections with others, and (as I will suggest in the next section) discounts and other benefits. Give users transparency to their own data — what is collected and why and how it is used, and for what benefit — and the opportunity to edit that data for accuracy and comfort (making it, by the way, only more accurate and useful). Media companies can become trusted intermediaries, marketplaces, and perhaps even protectors of data.

Let’s say we did these all things, that we in media become expert at building relationships. Then we also have the opportunity to take this skill to our customers, our advertisers, helping them build their digital presences and their customer relationships online. Some larger media companies do bits of that today. They help advertisers with such tasks as search-engine optimization. That’s not really a core competence; truth is, media companies usually just resell the services of SEO specialists. If we in media truly knew people as individuals and understood their communities, we could help marketers break out of their bad habits of forcing messages on customers. This idea is easiest to illustrate at a small scale, say with a beat business, a hyperlocal site that serves a town. Mimicking the behavior of the local newspaper, these sites march into local merchants and sell them space on pages that advertisers then fill with their messages: “We’re good electricians.” But now those merchants can reach out to customers where they live online — through Facebook, Twitter, YouTube, email, Google Maps, Yelp, Instagram, and wherever customers gather next — and not just feed them messages but enter into conversations. I sat down with one family-owned business in my town and learned how the proprietor and his wife found success bringing in a new customer base — high-school students — by trading Facebook likes for discounts. The proprietor, who’d recently taken over the business from his father, also told me about the customer database he had inherited: boxes and boxes of index cards in the basement. I saw an opportunity to help him build that into a real database he could use to make targeted pitches to customers in town. I saw the opportunity to help him exploit Twitter to announce sales; YouTube to show off new styles; Google Maps to make sure his shop would be displayed well on search results there. He is far too busy to do all that. So there’s the opportunity for the local beat business: It can help that merchant with his digital life. And there’s a bonus. By using Facebook, Twitter, et al, the beat business can get credit for reaching more customers than its site alone can deliver, which is especially helpful as a new site grows. The disadvantage: it’s all a helluva lot of work, requiring production skills and time a local site probably doesn’t have. This is why, in New Jersey, we have been exploring creating shared backshops to do the work so local sites can resell their services, just as large sites resell SEO work. Thus media sites begin to look like and compete with advertising agencies, selling services and not just space.

Personal, transactional data is also key to what I believe is another revenue opportunity for media: commerce. I’m not suggesting that we open stores and warehouses, only that commerce is the ultimate and obvious extension of advertising: We help cause demand that merchants fulfill. We are compensated either via advertising or via a share of revenue; the difference is risk, whether we are paid upfront or on performance. Some media companies are beginning to sell products to the public. The New York Times is marketing not only branded merchandise — framed newspaper pages, New York Times hats, and New York Times jigsaw puzzles — but also wine and now even travel. London’s Telegraph for years has sold merchandise directly to readers in categories where it would not compete with its advertisers. The Telegraph is a leading retailer of clothes hangers in the U.K., in addition to nightshirts, Panama hats, garden sheds, and — they don’t much like this being known — knee braces. (I imagine the Telegraph reader is easy to spot: well-pressed, well-rested, with a jaunty hat but traces of dirt under the fingernails and a vague limp.) With one more line of direct revenue from consumers that is not available to American publishers — sports betting — commerce has added up to a considerable chunk of the Telegraph’s profits. Years ago, I thought I would be fired by my newspaper employer when I dared to suggest that we should go into the real estate business, becoming a broker ourselves to acquire access to the data about homes for sale that was becoming a valuable commodity; to compete with the real-estate agents that were leaving us anyway; and to serve the customers who’d long since left for craigslist. Years later, Dean Singleton, then publisher of The Salt Lake City Tribune, experimented with doing just that, becoming a discount listing broker. The experiment petered out in the midst of other challenges in the company, but it was a brave attempt to restructure the relationships in the market.

Next: Amazon, Google, and eBay are experimenting with same-day delivery. Years ago, I remember sitting in an industry brainstorming meeting about the future of newspapers when someone suggested that newspapers should repurpose their trucks and start delivery businesses (though given the condition of those trucks and the union status of their drivers, they probably would still be wise trying to get rid of their fleets). I wonder whether there is opportunity in retail’s restructuring. Some company is going to crack local, same-day delivery, either from its warehouse (that’s Amazon’s model) or from local partners (that’s Google’s) or from any local retailer (that’s eBay’s). Someone will crack the far-from-trivial problem of getting local retailers’ inventory computerized such that customers can find out which store has an item in stock. Pricing competition will be fierce. Margins will be even thinner than they are now. Nonetheless, someone will still have an opportunity to help create demand and benefit from it.

Could that be magazines? I was part of the team at Condé Nast that built Style.com as an online retailer. That experiment didn’t succeed for a host of complex timing reasons: our fulfillment partner retrenched after the early-2000s crash; consumers weren’t ready to buy expensive clothes online — though later they would be; retail wasn’t our core competence; and so we were probably too soon. But if any medium would be good at sales, it should be magazines. Newspapers, too, could help drive demand, working with local partners to fulfill products as a new generation of local, retail marketing. Local media can help local merchants in other ways. On her Newark site Brick City Live, Andaiye Taylor created a loyalty program for local businesses.

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